LiveJournal has been on UTF-8 as long as I started using that service in 2 years ago and don't understand why WP doesn't do the same. The main reason LJ is on UTF-8 is to support bloggers who want to blog in multiple languages.
In LJ, a blogger can write an entry that's half in japanese and half in english go back in and edit -- when they wrote in じゃね they go back in to edit じゃね. But in WP, a blogger can't. When they go back in to edit their entries, they see じゃね. It's not user friendly.
And besides, any XML page (and that includes XHTML) will be parsed as utf-8 or utf-16 (though, when I code my pages, I still add redundantly add utf-8 into the meta tag for older browsers that don't recognize xml/xhtml). And unicode was chosen to make internalization/localization easier. Why override a good thing with the more limiting iso-8859-1 and iso-8859-15?
For now, I've gone through the source code of the 2/14 nightly build and replaced every instance of iso-8859-1 and iso-8859-15 with UTF-8 and this seems to make the blog handle japanese more like LJ would. But, shouldn't unicode support come out of the box?
(Oh, and I don't mean to sound negative, but I love the work you've been doing so far. As soon as multiple categories is supported and WP 1.1 is released, I hope to switch from Automated Archive. Despite this one minor nitpick, WP is far superior to AA in many many ways. Congrats on working on a very fine piece of software.)